UK hire car Comparison

Get Our Free Weekly Email!

For all the latest deals, guides and loopholes - join the 10m who get it. Don't miss out

By Harriet Meyer | Edited by

If you want to avoid paying a huge upfront deposit, and don't mind about whether you own it, leasing could be an option.

Leasing deals are basically long-term car rental agreements that offer low monthly repayments. You hand the car back at the end of the contract, and youre done. Heres our guide to how leasing works and whether its the right option for you.

This is the first incarnation of this guide. Please suggest any changes or questions in the Car leasing discussion.

What is leasing?

Leasing a car is like leasing - or renting - anything else. If you rent a house or flat, you pay a deposit, then you get the use of it for an agreed period during which you pay a set amount each month. Once the contract ends, the property reverts back to the landlord.

And it's the same with car leasing. You pay a deposit - usually equivalent to three to six times the monthly payments you'd make for that make and model of car - and then you pay an agreed amount monthly. At the end of the deal, the car goes back to the finance company. And, just like with a property, you'll need to pay out if you've damaged anything.

It's hugely popular in the US, where more than a quarter of cars are leased (however, it works slightly different in the US). But it's been slow to catch on in the UK, with less than 5% of consumers financing new cars this way, and virtually zero leasing used cars.

However, since the 2008 downturn, leasing's been growing in popularity, likely because monthly payments are low and it fits better into a budget than paying the larger monthly payments loans or hire purchase deals require to own the car.

How does leasing work?

Car leasing contracts typically run for two to four years. The length of the contract generally depends on you, and how long you want the car for, or how long you want to wait before getting your next brand spanking new car.

If you opt for a leasing deal, you need to choose your car first. It stands to reason that leasing a hatchback's going to be cheaper than a top-of-the-range 4x4 or luxury car.

Hopefully you'll have an idea of how much you have spare in your budget to spend on the car. So, research is important at this stage, to check that there are leasing deals out there for a car that you can afford. There's no point opting for a top-of-the-line BMW if you can't afford the monthly payments.

There are car leases out there that start from 99 per month, so there should be something out there to suit you, whatever your budget.

Top tip! Don't forget about VAT. Leases are mostly targeted at businesses, which means many deals are quoted excluding VAT. So, ensure you've checked if it says incl or excl VAT, and - if it's the latter - add 20% onto the monthly price to find the amount you'll actually pay. Then ask yourself: is it still a good deal?

Once you've ordered your new car, and specced it up, you'll need to pay a processing fee, usually around 150-200 so the broker or dealer can get your deal up and running.

However, before you do this, you'll usually need to get approved for finance, and agree the term you want to lease the car for, and your mileage limit. Don't lowball the mileage, as you will be charged if you go over it.

Then, once the car's ordered, the dealer or finance provider should arrange delivery.

Some people like leasing deals because you often get road tax and breakdown cover included (and possibly servicing, but this is generally offered as an additional package). But it's not all a win for you.

First off, you don't own the car. Ever. And the leasing deal will come with some conditions. These include a limited number of miles you can drive each year (you agree this at the outset) and keeping the car in good nick.

What happens at the end of the lease?

Once your agreed contract term has run out, two things can happen. The first is that you could choose to extend the lease on the car - it's worth contacting the finance company a few months before the end of the deal to check it will allow this, and whether it'll offer a discount on the monthly payment as it's now an older car.

Alternatively, you can choose to hand the car back. If it's in good nick, and you've stuck within the agreed mileage, then there'll be nothing else to pay. Usually the finance company will collect the car for free. Again, it's worth contacting it a few months before the end of the deal to arrange the handover - though it may contact you.

If you've gone over the mileage limit, then you'll need to pay a charge, which is usually between 3p and 10p per mile, but can be much more if you leased a premium car model.

Similarly, if it's not in good nick, you'll face a bill for that. What the finance company is looking for is a car in saleable condition. So, if it's covered in dinks and scrapes, then you're going to need to pay to make things right.

Remember! The car is owned by the finance company. You have no option to buy it, and you can't sell it.

Quick question

How can I estimate my mileage?

What mileage you need to put down really depends on how much you think you will be driving the car. Will you just use it as a runaround on the weekend or will you be driving to work? Let's take an example...

Anne works Monday to Friday and want to drive to work everyday. She works 10 miles away - this means she will be doing at least 100 miles per week. Taking into account four weeks' holiday a year, she will be doing 4, 800 miles a year just driving to work. And that's before taking into account weekend car journeys and any holiday driving.

So, for Anne, it's probably worth estimating that in an average year she'd do 6, 000-7, 000 miles. It's always best to have some leeway in your estimate.

Is leasing the right option for me?

Sadly, only you can decide this. But, here are the big advantages and disadvantages of leasing. Make sure you can live with the disadvantages. If you can't, then it's likely that leasing isn't for you, and you might want to look at the other finance options.